Chief Economist Scott Brown discusses the latest market data.
The headline Consumer Price Index (CPI) figures for January were a bit higher than expected (up 0.6% overall and ex-food & energy), bringing the year-over-year pace to 7.5% – the largest 12-month gain since February 1982. Ex-food & energy, the index for consumer goods rose 1.0% in January, up 11.7% year over year (vs. +1.5% y/y a year ago). Prices of new vehicles were flat (+12.2% y/y), while the index for used cars and trucks rose 1.5% (+40.5% y/y). The CPI for non-energy services rose 0.4%, up 4.1% y/y (vs. +1.6% y/y a year ago), largely reflecting a rebound from the low inflation of a year earlier. The price index for transportation services rose 1% (+5.6% y/y, vs. -3.5% y/y a year ago), while rent of shelter rose 0.4% (+4.4% y/y, vs. +1.9% y/y a year ago).
Following on the heels of the strong January employment report, the CPI data boosted market expectations that the Federal Reserve will raise short-term interest rates by 50 basis points at the mid-March policy meeting. However, there are some signs that consumer spending (nearly 70% of gross domestic product) will slow. University of Michigan Consumer Sentiment fell to 61.7 in the mid-February reading (down from 67.2 in January and 70.6 in December). Wage income growth is supportive, but the extended child tax credit has ended; fiscal stimulus payments are long behind us; and higher inflation erodes purchasing power.
Next week: The Producer Price Index (PPI) report should continue to reflect pipeline inflation pressures, but somewhat more moderate. Retail sales should be boosted by a pickup in vehicle sales but amplified by the seasonal adjustment. Investors will look to the Federal Open Market Committee minutes for signs of whether Fed officials are open to a larger rate increase.
As of close of business 2/10/2022.